In re Woodruff

• Decision Date: 30 April 2019
• Docket Number: Case No. 17bk18780
• Citation: 600 B.R. 616
• Parties: IN RE: Christina WOODRUFF, Debtor.
• Court: U.S. Bankruptcy Court — Northern District of Illinois

600 B.R. 616

IN RE: Christina WOODRUFF, Debtor.

Case No. 17bk18780

United States Bankruptcy Court, N.D. Illinois, Eastern Division.

Signed April 30, 2019

Attorneys for Christina Woodward: Adam B. Bourdette, Michael C. Burr, Samantha V. Jaime and Xiaoming Wu, Borges & Wu, LLC, Chicago, IL

Attorneys for Wheeler Financial, Inc.: David R. Doyle and Robert M. Fishman, Fox Rothschild LLP, Chicago, IL

TIMOTHY A. BARNES, Judge.

MEMORANDUM DECISION

The matter before the court is the Objection of Wheeler Financial, Inc.[,] to Chapter 13 Plan [Dkt. No. 129] (the "Confirmation Objection"), filed by Wheeler Financial, Inc. ("Wheeler") in the above-captioned case, objecting to the confirmation of the Debtor's proposed chapter 13 plan, Official Form 113—Chapter 13 Plan [Dkt. No. 106] (the "Proposed Plan"). Also before the court is the Objection to Claim # 7-2 of Wheeler Financial, Inc[.] [Dkt. No. 132] (the "Claim Objection") filed by Christina Woodruff (the "Debtor"), seeking to have the court determine Claim No. 7-2 (the "Claim") filed by Wheeler.

In the Confirmation Objection, Wheeler requests that the court reconsider and reverse its prior ruling on a debtor's ability to treat tax purchaser claims under a chapter 13 plan, see In re Robinson , 577 B.R. 294 (Bankr. N.D. Ill. 2017) (Barnes, J.), but at the same time suggests that Robinson , if left unaltered, requires it to succeed on the Claim Objection. In the Claim Objection, the Debtor requests partial disallowance of the Claim by reducing the amount of the Claim to the statutory redemption amount owed under Illinois law. Barring that, the Claim Objection seeks a determination of the allowed amount of the Claim.

For the reasons more fully stated herein, neither the Confirmation Objection nor the Claim Objection prevails in its primary contentions.

The Confirmation Objection is not well taken in its primary contention. Not only has the argument in and regarding the Confirmation Objection failed to demonstrate that the court's ruling in Robinson was incorrect in any way, that argument has in fact reinforced the court's conclusions as the correct ones. However, given that the Claim as determined by the court in this Memorandum Decision is not fully addressed in the Proposed Plan, the Confirmation Objection is sustained in that limited respect only.

The Claim Objection also does not succeed in its primary contention, that the Claim should be limited to the amount due under Illinois law to redeem the property tax lien purchased by Wheeler. Nonetheless, the Claim Objection succeeds insofar as it obtains herein the determination of the allowed amount of the Claim. For the reasons stated more fully below, the court determines that, irrespective of whether the statutory deadline for redemption of the sold taxes has passed, a tax purchaser has a perfected in rem claim for the statutory redemption amount. A tax purchaser also has a contingent, unperfected in rem claim for its contingent equitable right to seek a tax deed that exists irrespective of whether the redemption period has passed. Such unperfected in rem interest is unsecured both by the express terms of the Bankruptcy Code (defined below) and as it is subject to the trustee's avoidance power as a hypothetical lien creditor. The resulting allowed unsecured claim is determined herein, given the likelihood that the contingency will occur with the passing of the redemption period, to be the fair market value of the property less the preceding secured claim for the redemption amount. As a result, the Claim Objection is sustained in part and overruled in part, in the manner described herein.

JURISDICTION

The federal district courts have "original and exclusive jurisdiction" of all cases under title 11 of the United States Code, 11 U.S.C. §§ 101, et seq. (the "Bankruptcy Code"). 28 U.S.C. § 1334(a). The federal district courts also have "original but not exclusive jurisdiction" of all civil proceedings arising under the Bankruptcy Code or arising in or related to cases under the Bankruptcy Code. 28 U.S.C. § 1334(b). District courts may, however, refer these cases to the bankruptcy judges for their districts. 28 U.S.C. § 157(a). In accordance with section 157(a), the District Court for the Northern District of Illinois has referred all of its bankruptcy cases to the Bankruptcy Court for the Northern District of Illinois. N.D. Ill. Internal Operating Procedure 15(a).

A bankruptcy judge to whom a case has been referred may enter final judgment on any core proceeding arising under the Bankruptcy Code or arising in a case under the Bankruptcy Code. 28 U.S.C. § 157(b)(1). Bankruptcy judges must therefore determine, on motion or sua sponte , whether a proceeding is a core proceeding or is otherwise related to a case under the Bankruptcy Code. 28 U.S.C. § 157(b)(3). As to the former, the court may hear and determine such matters. 28 U.S.C. § 157(b)(1). As to the latter, the bankruptcy court may hear the matters, but may not decide them without the consent of the parties. 28 U.S.C. §§ 157(b)(1), (c). Instead, the bankruptcy court must "submit proposed findings of fact and conclusions of law to the district court, and any final order or judgment shall be entered by the district judge after considering the bankruptcy judge's proposed findings and conclusions and after reviewing de novo those matters to which any party has timely and specifically objected." 28 U.S.C. § 157(c)(1).

In addition to the foregoing considerations, the bankruptcy judge must also have constitutional authority to hear and determine a matter. See Stern v. Marshall , 564 U.S. 462, 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011). Constitutional authority exists when a matter originates under the Bankruptcy Code or, in noncore matters, where the matter is either one that falls within the public rights exception, id. , or where the parties have consented, either expressly or impliedly, to the bankruptcy court hearing and determining the matter. See, e.g. , Wellness Int'l Network, Ltd. v. Sharif , ––– U.S. ––––, 135 S.Ct. 1932, 1939, 191 L.Ed.2d 911 (2015) (parties may consent to a bankruptcy court's jurisdiction); Richer v. Morehead , 798 F.3d 487, 490 (7th Cir. 2015) (noting that "implied consent is good enough").

An objection to a bankruptcy plan may only arise in a case under the Bankruptcy Code and is part of the process of confirming a plan, which is specified as a core proceeding. 28 U.S.C. § 157(b)(2)(L) ; In re Shelton , 592 B.R. 193, 198 (Bankr. N.D. Ill. 2018) (Barnes, J.). Similarly, an objection to a claim may only arise in a case under the Bankruptcy Code, arises under section 502 of the Bankruptcy Code and is specified as a core proceeding. 28 U.S.C. § 157(b)(2)(B) ; In re Montalbano , 486 B.R. 436, 438-39 (Bankr. N.D. Ill. 2013) (Barnes, J.); see also Lenior v. GE Capital Corp. (In re Lenior ), 231 B.R. 662, 667 (Bankr. N.D. Ill. 1999) (Schmetterer, J.).

More importantly, no party has contested the jurisdiction or authority of this court to enter final orders in this matter. Accordingly, determination of both the Confirmation Objection and the Claim Objection is within the scope of the court's jurisdiction, statutory and constitutional authority.

BACKGROUND AND PROCEDURAL HISTORY

The matter before the court is the culmination of a complicated series of events in the Debtor's bankruptcy case. Neither of the parties appears to challenge the factual underpinnings, as described below.

A. Events Prior to the Debtor's Bankruptcy Case

The Debtor is the owner of the property commonly known as 14100 West Laramie Court, Crestwood, Illinois 60445 (the "Property"). The Property appears to be the Debtor's residence.

Prior to the commencement of the above-captioned bankruptcy case, the Debtor failed to timely pay various property taxes owed to Cook County, Illinois. At the annual Cook County tax sale in August 2014, Wheeler purchased the Debtor's delinquent property taxes and in exchange received a lien on the Property for the payment of the purchase price plus interest and certain costs and fees set by statute (the "Redemption Amount"). On November 16, 2016, Wheeler filed a petition for a tax deed in the Circuit Court of Cook County pursuant to 35 ILCS 200/22-30. In re Application of County Treasurer for Judgment & Order of Sale , Cert. No. 12-0000820, Case No. 2016 C0TD 4494 (Ill. Cir. Ct. Cook Cty., filed Nov. 16, 2016). The filing of the tax deed petition invoked the process under Illinois law that would allow, should all of the applicable conditions be met, Wheeler to obtain ownership of the Property by receiving a court-ordered tax deed. 35 ILCS 200/22-40(c).

The tax sale procedures afforded the Debtor the opportunity to redeem the taxes sold to Wheeler and thus extinguish Wheeler's lien by paying the Redemption Amount. 35 ILCS 200/21-345 to 397. The Redemption Amount was required to be paid to Cook County prior to the statutorily-determined deadline (the "Redemption Deadline"). Id. Payment of the Redemption Amount would prevent Wheeler from obtaining the tax deed. 35 ILCS 200/21-390 ("The receipt of the redemption money ... shall operate as a release of the claim to the property ....").

The Redemption Deadline, as extended by Wheeler, was May 12, 2017, which passed without the Debtor having exercised her right to redeem the Property. Conf. Obj., at pp. 2-3. Before Wheeler could take the next steps toward tax deed ownership, however, the Debtor filed for bankruptcy.

B. The Debtor's Chapter 7 Case

On June 21, 2017 (the "Petition Date"), the Debtor commenced the above-captioned bankruptcy case by filing the Voluntary Petition for Individuals Filing for Bankruptcy, Official Form 101 [Dkt. No. 1] (the "Petition"). In the Petition, the Debtor requested relief under chapter 7 of the Bankruptcy Code. Id. Within a week of the filing of the Petition, the Debtor filed her schedules A/B, C, D, E/F, G, H, I, J, J-2 [Dkt. No. 12] (collectively, the "Schedules" and as to each, "Schedule __"), each on...